Canadian Underwriter

Final outcome of The Co-operators’ surface water commercial property coverage dispute

February 12, 2021   by Greg Meckbach

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A Supreme Court of Canada decision released Thursday means The Co-operators cannot appeal a $429,000 court decision against it over “surface water” coverage on a commercial property policy.

In Co-operators General Insurance Company v. Le Treport Wedding & Convention Centre Ltd., released July 28 2020, the Court of Appeal for Ontario ruled that The Co-operators has to pay a Mississauga convention centre client a grand total of $929,000 on a property claim arising from water damage.

The Co-operators had argued it should only have to pay $500,000, which is the sub-limit on the sewer backup policy.

The key question in the coverage dispute was: When a commercial property policy excludes damage caused by “surface water,” to what extent can that exclusionary language be used to interpret any separate endorsement in the same policy providing flood coverage?

The dispute arose from Canada’s fifth most-expensive insured catastrophe, which cost the industry about $1 billion. On July 8, 2013, a thunderstorm system pretty much stopped over western Toronto, dumping more than 9 cm of rain in about an hour on Toronto and suburbs to the west and north. That is more rain than Toronto has historically received during the entire month of July.

Le Treport is an event venue in a Plaza on Queensway and Stanfield Rd. in Mississauga, about 600 metres west of Tonelli Creek and about 20 kilometres west of downtown Toronto.

During the 2013 storm, water flowed into the parking lot of that Mississauga plaza and in through the doors of Le Treport. Water also got in through the ceiling and up through floor drains.

Over the next five years, The Co-operators paid a grand total of $500,000 to Le Treport. Several disputes arose, but the one that hit Ontario’s appeal court in 2020 was over the flood endorsement.

There is an exclusion in the policy for surface water, waves, tides, tidal waves, tsunamis, or the breaking out or overflow of any natural or artificial body of water. Le Treport also bought an optional endorsement covering “the rising of, the breaking out or the overflow of any body of water, whether natural or man-made and includes waves, tides, tidal waves, and tsunamis.”

In a 2019 ruling, Judge Douglas Gray of the Ontario Superior Court of Justice ruled in favour of The Co-operators. One major reason for that ruling was that the term “surface water” is in the exclusion, but missing from the endorsement.

On appeal, The Co-operators was ordered to pay out an additional $429,329.18 on Le Treport’s claim. The grand total (of about $929,000) equals the value of damage, to the building and contents, according to a 2016 umpire’s decision. On top of that $929,000, The Co-operators was hit with cost awards, requiring the insurer to reimburse the claimant for legal costs.

In its 2020 ruling, the Court of Appeal for Ontario found that the flood endorsement ousts the flood exclusion in its entirety, despite the absence of “surface water” in the endorsement and the presence of “surface water” in the exclusion. The appeal court found that if Justice Gray’s ruling were to stand, this would effectively nullify flood coverage.

“Few buildings stand right on the edge of a body of water. The [claimant’s] facility is on land located some distance away from water. How could the Flood Endorsement ever be engaged if it excluded a flood via surface water?” Justice Peter Lauwers wrote for the Court of Appeal for Ontario.

The Co-operators applied Oct. 20, 2020 for leave to appeal the Court of Appeal for Ontario ruling.

On Jan. 11, 2021 the Supreme Court of Canada announced The Co-operators’ leave application is dismissed with costs to the claimant.

“There is no question that the ordinary meaning of the word ‘flood’ would include the massive, forceful, and fast-moving flow of water into the facility on this occasion,” Justice Lauwers wrote for the Court of Appeal for Ontario in its unanimous 2020 finding that the flood endorsement applies to what happened to Le Treport on July 8, 2013.

The appeal decision was not only about the surface water wording. There was also controversy on the exact facts: whether some or all of it was caused by water coming up through drains, or whether some was caused by water entering the building from the ground or through apertures in the roof.

The Co-operators argued there is no evidence that water from the creek “meaningfully contributed” to any of the water that flowed into the claimant’s premises. No expert evidence was called to that effect. There was also no evidence that any other body of water was nearby that could have contributed to the flow of water, the Co-operators argued.

But the Court of Appeal for Ontario made a finding of fact: based on the local topography, water would have flowed from the creek to the plaza.

Le Treport owner John Cipressi testified that there is six-inch curb and then a four-inch lip at the building entrance. Cipressi said on the day of the storm, water was flowing west down the Queensway and vehicles on the road had water up to the mid-point of their hubcaps.  About half an hour after the rain started, water came pouring from the Queensway across the ditch, into the parking lot and ultimately into the building

Cipressi testified that there were at least two inches of water in the front lobby. There was water in the washrooms, and in the large event rooms water was at least ankle deep.

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